Price Is A Signal

Posted by Doug Davidoff

Mar 15, 2010 8:23:04 AM

It has always amazed me how selling organizations and salespeople deal with the emotional aspects of price.  If I were in a room with all the business executives and/or salespeople in the world and I asked the question, "How many of you would like to get more for your products and services?"  I'm pretty confident that 100% would raise their hands.  Yet, when you watch their behaviors in the market, I'd be surprised if more than 50% of them behaved in accordance with that desire.

In the last couple of months, I've written often about price, pricing, and its importance in creating demand.  While virtually everyone claims to desire premium margins, I've come to realize that most people fall into three camps when it comes to getting a premium price:

    1. The first group is comfortable and confident pursuing premium pricing and margins.  They feel they earn them, they deserve them, and, albeit on the more extreme side, believe they are doing a disservice to their customer base if they are not paid.  They believe that these premium margins are what support a superior promise and experience.  Companies like Apple, Fedex, BMW, Four Seasons, and McKinsey immediately come to mind when you think about this.  In my experience, this group accounts for about 10% of people or companies.

    1. The second group pursues premium margins, but they view this more as a tactic than a belief.  This results in an attitude of "we get a premium because we can," and it leads to an awful lot of internal conflict and sometimes even guilt.  This, ultimately, becomes a major barrier in making such pricing sustainable.  In my experience, this accounts for 25 - 50% of people or companies.

    1. The third group simply doesn't believe that they deserve premium prices or margins.  They may pursue them, but it's always a struggle, and these people and companies are more likely than not to be the cause of price sensitivity in the client/customer base.

In almost all cases, the underlying reason for someone falling in the second and third group is because they focus is on the commodity being sold, not on the value being created.

Here's the thing - price is merely a signal.  It's the tangible component to what is, inherently, an intangible offering (your intelligence value is, by definition, intangible).  Charging a higher price is merely making the declaration that you provide a better offering.  Pricing is a choice, and buyers will buy a higher price if you back it up with actions.  Great companies get that pricing is strategic - not tactical.  McKinsey studied pricing in the 90s and found that a 1% increase in price led to an 11% increase in profits.

It is absolutely critical that everybody in a client-facing role understand, truly understand, the importance and rationale about price.  Every business executive and salesperson should stop what they are doing right now and download Todd Sattersten's amazingly simple, engaging and perceptive ebook on pricing.  Further you should read it consume it before the day is done.  While I've read a lot (too much really) about pricing, I've not come across anything that puts it in perspective as well as this eBook (it's also where I learned the tidbit about McKinsey's study).

It's your choice - what are you going to do?

Topics: B2B Sales Strategy, Demand Generation